Legal Update

October 19, 2018

New Proposition 65 Warning Requirements Go into Effect

In 1986, California voters approved Proposition 65, an initiative to address their growing concerns about exposure to toxic chemicals. That initiative is officially known as the Safe Drinking Water and Toxic Enforcement Act of 1986. The law requires California to publish a list of chemicals known to cause cancer or reproductive toxicity, and for businesses with 10 or more employees to provide warnings when they knowingly and intentionally cause significant exposures to listed chemicals.

New product warning requirements became effective August 30, 2018 for products produced after that date.

The list of chemicals currently includes more than 850 chemicals. Proposition 65 does not ban or restrict the sale of listed chemicals, or products containing those chemicals The warnings are intended to help Californians make informed decisions about their exposures to these chemicals from the products they use and the places they go.

“Businesses” affected by Proposition 65 include wholesalers, distributors, dealers and retailers, as well the manufacturer, producer, packager, importer and supplier of a consumer product sold in or into California. More limited obligations are imposed on a retail seller who sells products directly to California consumers, including via the internet.

A “consumer product” is any article, or component part thereof, including food, which is produced, distributed, or sold for the personal use, consumption or enjoyment of a consumer. (27 CA ADC 25600.1(d)).

What Are the Most Significant Changes to the Proposition 65 Warnings For Consumer Products?

Since the original warning requirements took effect in 1988, most Proposition 65 warnings simply state that a chemical is present that causes cancer or reproductive harm, but they do not identify the chemical or provide specific information about how a person may be exposed or ways to reduce or eliminate exposure to it.

New OEHHA regulations were adopted in August 2016 and took full effect on August 30, 2018 for products produced on or after that date. The regulations changed the safe harbor warnings which are deemed to comply with the law in several important ways. The amended requirements are not retroactive, so businesses need not update on-package warnings for items manufactured before August 30, 2018.

For example, the long-version of the new warnings for consumer products will say the product “can expose you to” a Proposition 65 chemical rather than saying the product “contains” the chemical. They will also include:

The name of at least one listed chemical that prompted the warning,

The Internet address for OEHHA’s new Proposition 65 warnings website, www.P65Warnings.ca.gov, which includes additional information on the health effects of listed chemicals and ways to reduce or eliminate exposure to them, and

A triangular yellow warning symbol on most warnings.

There is also a short-form warning that may be provided. For more information refer to the California Code of Regulations, 27 CA ADC 25601-25607.33.

What Are Other Highlights of the New Warnings System?

The new warning regulation also:

Adds new “tailored” warnings that provide more specific information for certain kinds of exposures, products, and places,

Provides for website warnings for products purchased over the Internet,

Provides for warnings in languages other than English in some cases, and

Clarifies the roles and responsibilities of manufacturers, those in the supply chain, and the ultimate retail seller in providing warnings.

Noncompliance Can Be Costly

Failure to provide the product warnings can result in substantial fines and other expenses. Enforcement is vested in the State and private attorneys’ lawsuits for recovery of fines and attorney fees. So-called “Bounty Hunter” lawsuits have become big business for California attorneys, as the table below illustrates.

Year

Prop 65 Settlements

Total Payments (Millions)

Attorneys Fees (Millions)

2017

688

$25.76

$19.48

2016

760

30.15

21.56

2015

582

26.23

17.83

2014

663

29.48

21.85

2013

352

17.41

12.73

Total

3,045

$129.03

$93.45

Conclusion

The Proposition 65 warning requirements for consumer products sold in or into California do apply to wholesalers, distributors, dealers and other non-manufacturer sellers as well as to the manufacturer. However, it is the manufacturer that has the knowledge of the chemical content of its products and thus has the ability to determine if a warning is required, and to apply that warning to the product before it enters the supply chain.

To help assure compliance, a company should consult with your management and quality assurance personnel and professional advisors. Possible responses to consider include: have your upstream suppliers confirm that their products meet the new California warning requirements; check existing contracts with suppliers for adequate assurances that require the supplier to place legally-mandated warnings on its products; and assure your website properly displays the required warnings for products you sell to California consumers over the Internet.

On June 21, 2018, the U. S. Supreme Court issued its 5-4 decision in the Wayfair case, and decided that an online seller without a physical presence (e.g., office, store, warehouse, employees) in a state may nevertheless be required to collect state sales tax on sales made to residents in the state. A South Dakota law imposing such a sales tax collection requirement on remote sellers without an in-state physical presence does not violate the Commerce Clause of the U. S. Constitution. (South Dakota v. Wayfair, Inc., et al., No. 17-494).

The physical presence rule announced in prior Supreme Court precedents – Quill Corp. v. NorthDakota (1992) and National Bellas Hess v. Illinois (1967) – were overruled as “unsound and incorrect.” Candidly, the court acknowledged that Quill has come to serve as a judicially created tax shelter for out-of-state sellers, granting them an unfair competitive advantage over their in-state rivals.

The South Dakota sales tax law at issue requires out-of-state sellers without a physical presence in the State to collect and remit sales tax on sales made to South Dakota residents. The law only applies to sellers that, on an annual basis, deliver more than $100,000 of goods and services into the State or engage in 200 or more transactions for delivery of goods and services into the State. The law is not applied retroactively and has been stayed until its constitutionality is clearly established.

NAW and other business groups file Amicus briefs in this case, urging the Court to overrule Quill and abandon the physical presence rule. Our brief cited the rule’s adverse economic consequences for the community-based brick-and-mortar wholesaler-distributor:

“NAW member companies who have a distribution center, a sales office, a branch office, make deliveries in a state, or have some other form of physical presence in a state are forced to operate at a clear and substantial economic disadvantage vis-à-vis remote internet sellers competing in the same markets. This disadvantage results in lost sales revenue and hampers the ability of locally present wholesaler-distributors to grow their businesses, invest in the community, and produce in-state employment opportunities.”

Next Steps

The Court has remanded the case to the South Dakota Supreme Court, to address the question “whether some other principle in the Court’s Commerce Clause doctrine might invalidate the Act.” These principles include: the tax must be fairly apportioned; the tax must not discriminate against interstate commerce; and, the tax must be fairly related to State services provided to the seller.

On a positive note, the Court observed that “South Dakota’s tax system includes several features which appear designed to prevent discrimination against or undue burdens upon interstate commerce.”

In his dissenting opinion, Chief Justice Roberts would have deferred to Congress to correct the Quill decision. From 2001 to 2017 Congress has considered, but not passed, legislation concerning interstate sales tax collection and three bills are currently pending – including the Marketplace Fairness Act of 2017 supported by NAW and other business groups. “Nothing in today’s decision precludes Congress from continuing to seek a legislative solution,” notes the Chief Justice.

The Rules Have Improved for NLRB Scrutiny of Employee Handbook Restrictions

Section 7 of the National Labor Relations Act (NLRA) grants employees the right to discuss or criticize management, their wages, hours and other working conditions. An employer’s interference with these so-called section 7 rights can result in an unfair labor practice charge for adjudication by the National Labor Relations Board (NLRB). The Act applies to employers, whether or not your employees are represented by a labor union.

A favorite target for employee or union complaints has been the employee handbook and company policies applicable to employee conduct – such as social media, use of email, workplace recordings, confidentiality and conflicts of interest.

The assault on employee handbooks and company policies is likely to ease – as a result of The Boeing Company case. In a 3-2 decision under the new Republican majority (the first in 9 years), the NLRB articulated a new standard for the evaluation of company policies or rules that are facially-neutral (i.e., rules that don’t expressly interfere with NLRA rights).

In the Boeing case the NLRB overruled its 2004 decision in Lutheran Heritage Village-Livonia, which held if a workplace rule could be “reasonably construed” by employees as interfering with the exercise of protected rights it violated the NLRA. Under this vague standard, practically any rule was subject to challenge. (Example: “Be respectful of others and the Company” was found illegal by the Board because an employee mightpossibly refrain from criticizing a supervisor, co-worker of the employer.)

New Boeing Test

The “reasonably construed” standard has been scrapped in favor of a new test. “When evaluating a facially-neutral workplace policy, rule, or handbook provision, that when reasonably interpreted, would potentially interfere with the exercise of NLRA rights, the Board will evaluate two things: (i) the nature and extent of the potential impact on NLRA rights, and (ii) legitimate justifications associated with the rule.” According to the Board, this new test strikes “the proper balance between employees’ rights and business justifications.”

The Board goes on to delineate three categories of employment policies, rules, and handbook provisions. These categories represent a classification of results from that new test:

Category 1: “Will include rules that the Board designates as lawful to maintain, either because (i) the rule, when reasonably interpreted, does not prohibit or interfere with the exercise of NLRA rights; or (ii) the potential adverse impact on protected rights is outweighed by justifications associated with the rule.” The NLRB declared that rules requiring that employees foster “harmonious interactions and relationships” or abide by basic standards of civility are lawful, as are rules like Boeing’s which prohibited the use of cameras in the workplace without a valid business need and permit. All prior cases to the contrary were overruled.

Category 2: “Will include rules that warrant individualized scrutiny in each case as to whether the rule, when reasonably interpreted, would prohibit or interfere with the exercise of NLRA rights, and if so, whether any adverse impact on NLRA-protected conduct is outweighed by legitimate justifications.”

Category 3: “Will include rules that the Board will designate as unlawful to maintain because they would prohibit or limit NLRA-protected conduct and the adverse impact on NLRA rights is not outweighed by justifications associated with the rule.” For example, a rule prohibiting employees from discussing wages or benefits with one another would be unlawful.

More Good News from the NLRB

Also in 3-2 votes, the Board:

Overruled a 2015 decision that greatly relaxed the test when two separate companies were deemed joint employers under the NLRA. No longer will a joint employer relationship be found where there is only “indirect control” or a reserved right to control employment terms.(Browning-Ferris reversed in Hy-Brand Industrial Contractors).

Overruled a 2011 decision that allowed union attempts to represent “micro-units” of employees rather than the general workforce at a location (e.g., Board approved representation of Macy’s fragrance department workers, as opposed to all store workers). Unionization votes are easier to win when the petitioned unit is small (Specialty Healthcare reversed in PCC Structurals Inc.).

On December 16, 2017 the term of Chairman Philip Miscimarra ended, returning the Board once again to a split 2-2 between Democrat and Republican appointees. When the seat is filled by the President, experts expect further reversals of prior Board rulings that abandoned precedents and favored unionization.